Friday is the start of the seminal earnings season for 2024

BY ANDREW GIOVINAZZI

July 9, 2024

Yo Pit Crazies,

The Fed Chairman JPowell will give remarks this week. At this point the market assumes rates are staying where they are irrespective of who is in the White House. There are more calls for JBiden to leave the race but he says he is not. These in themselves should still the market for volatility somewhat.

The opposite happened on a Monday where VIX was down on the day and stocks really could not find a way to get anywhere. Part of that is the next big earnings cycle gets underway on Friday. The big banks will let us know how things are going with the higher rates starting to cycle through the system.

Licia, Mark and myself bought some short term puts in Citibank Corp (Ticker: C) in the Ticker Highlight Show as the big banks look weak into earnings. Those puts should close this week.

Now why did VIX rally with stocks going to all time highs last week?

I will tell you why.

Traders bid the volatility up on the upside

Below is a snapshot of the SPX Aug02 5600 call. Last week those calls were $20 and they touched $60 today before backing off. Note that the implied volatility (IV) on the redline went up every day even though we were in a holiday shortened week. That should have lowered the IV.

Traders were anticipating a move up where SPX is in kissing distance of 5600 and the Invesco QQQ Trust (Ticker: QQQ) tickles $500 for a near double in 2 years. Funny enough SPX has to pull back a bit for VIX to relax which is what happened monday. The rubber band is stretched out and needs to snap back.

This micro volatility pop could create a mess on Friday when the banks report. Traders are looking for a bigger move out of this week.

To Your Trading Success,